Charting a Course In a Sea of Demands

CHIEF executives are under intense pressure — whether from shareholders, environmental and labor activists or reinvigorated directors — to change their companies’ ways. Executives need to understand which groups to work with and which ones to fight, says David A. Nadler, chairman and chief executive of Mercer Delta Consulting, a management consulting firm based in New York. Following are excerpts from a conversation with him:

Q. Chief executives seem to be coming under fire from lots of new and different directions. Do you agree?

A. Yes, in working with chief executives, I’ve found that a major issue in front of them is, “How do I deal with all the constituencies who want something from the company or from me personally when many of them are increasingly hostile?”

There were always traditional constituencies, including the financial markets, customers, suppliers and your own people. But now, more and more time is being spent with regulators, prosecutors, legislators, the press, various communities and various special interest groups.

Q. They are dealing with more lawyers, too, right?

A. The chief executive of a major financial services firm told me recently that he was talking with peers in the industry and they discovered that, on average, each of them faces six governmental investigations related to shareholder lawsuits. Most of that has little to do with serving the customer. But it’s a fact of life.

Juggling all those constituencies and trying to figure out which ones are most critical, which ones you have to pay attention to, is difficult.

Q. In general, do you tell your clients to work with activists and disgruntled shareholders or to stonewall them?

A. The advice I’d give is, identify which constituencies can be worked with. There are some elements of the plaintiffs’ bar with whom there are no common interests. But in other cases, you can find common ground.

Q. Home Depot is one company trying to get out ahead, in this case on the question of where it gets its lumber, right?

A. Yes. Staples has done the same thing on the environment. There are a number of companies that have done it. If there is an issue arising, get out ahead of it.

That’s what social capital is all about. By his or her actions, a chief executive can build up social capital, or positive feelings about the company. Johnson & Johnson had positive social capital so that when it ran into the Tylenol crisis, it had a positive reservoir of feelings.

Q. Who else uses their social capital well?

A. There are also companies that have worked their way back from a situation where every constituency was critical of them to the point that they re-established credibility. Anne Mulcahy at Xerox, for example, has been working on that the last couple of years, reaching out to groups, to customers, to constituencies. She’s been credible and delivered on her promises.

Q. Are more nongovernmental organizations and activist groups attacking companies?

A. Yes, we’re seeing a rise of interest groups. As a consequence of what’s happened in the economy and the business scandals, there’s a more negative view of corporations. They have become more attractive targets.

Q. Can you think of a company or an industry whose top executives are not handling the new climate well?

A. The mutual fund industry is on the receiving end of this. If you’re in that industry, you have to reflect on what’s happened.

Q. And how do you think the oil industry is handling the pressures it is facing?

A. Another industry where you’d expect there would be a lot of negatives about the environment or price increases would be the oil industry. But BP, whose chief executive is John Browne, has positioned itself well with a commitment to alternative fuel research and the environment.

A. But still, BP has clearly been active in doing things to position themselves and show that they recognize the problems.

Q. Do you see this adversarial climate for chief executives as permanent?

A. I think it’s going to be here for some time. The accessibility of information has improved dramatically, thanks in part to the Internet. Interest groups can form much more easily and can communicate across time zones. I think it’s a fact of life that’s going to continue to be part of a chief executive’s job.

The really tough part of this is that the boundaries between internal and external constituencies have blurred. In the Wal-Mart situation, these are their employees who are pressing their cases. Managers have both internal and external challenges.

Q. What’s the biggest mistake chief executives make in handling these pressures?

A. When they go back into the C.E.O. cave and don’t engage.

Q. So a smart chief executive builds a coalition to respond to those putting pressure on the company?

A. Absolutely. Building social capital means that you have other people who feel positive about what you’ve actually done over time. It’s the job of chief executives to orchestrate that and build that coalition of support to deal with the attacks that are going to happen.